M. JHANGIR BHATUSHA ETC. ETC.versusUNION OF INDIA & ORS. ETC. ETC.

                  M. JHANGIR BHATUSHA ETC. ETC.
A
                                v.
                  UNION OF INDIA & ORS. ETC. ETC.

                                 MAY 17, 1989

B           [R.S. PATHAK, CJ. SABYASACHI MUKHARJI,
         · S. NATARAJAN, M.N. VENKATACHALIAH AND
                      S. RANGANATHAN, JJ.]

         Customs Act 1962: Section 25(2)-Edible Oil-Import of-
    Concessional rate af customs duty in favour of State Trading Cor-
    poration-Private importers complaining of differential treatmen~
c   Held necessary in public interest to make special order of exemption.

           The appellants/writ petitioners are private importers of edible
    oils. Under the Import Policy of 1978-79, the Government canalised the
    import of edible oils through the State Trading Corporation. Some of
D   the private importers who had entered into firm commitments with
    foreign suppliers, and were now being denied permission to import the
    edible oils, tiled writ petitions in various High Courts. These writ
    petitions were allowed and they were granted licences to import the
    edible oils, in order to honour their commitments.

E          From March 17, 1979 the import of edible oils was subjected to
    differential rates of customs duty at the hands of private importers and
    the State Trading Corporation, inasmuch as concessional rate of cus-
    toms duty was levied on the imports by the State Trading Corporation
    under the order of exemption issued under section 25(2) of the Customs
    Act, 1962. The order >lated that in view of high international prices of
F   vegetable oils and in order to keep the domestic prices at reasonable.
    levels it was considered necessary to exempt the State Trading Corpora-
    tion from part of the Customs duty.

          The appellants tiled writ petitions in the High Court of Delhi
    complaining of the differential treatment accorded between the private
G   importers and the State Trading Corporation. Similar writ petitions
    were filed in this Court directly. The High Court dismissed the writ
    petitions.

         Before this Court it was contended on behalf of the private
    importers that (i) there was no basis for the differential duty set out in
H   the exemption orders and no real or substantial nexus between the
                                       356
                             M.J. BHATUSHA v. U.0.1.                          357

    differentiation made· and the object of s. 25(2); (ii) there was no real or A
    substantial distinction between the private importers and the State
    Trading Corporation having regard to the object of the statute, the
    nature of customs duty, the rationale of s. 25 and the professed object of
    the exemption orders under s. 25(2); (iii) the State Trading Corporation
    could pot be equaled with the Central Government; (iv) assuming that· B
    tlte State Trading Corporation could be equated with the Central
    Government or that it was acting on behalf of the Central Government,
    once the Government ventured into the commercial field it donned the
    robes of a trader, and it could not therefore claim any special attribute
    or preference for differentiation; (v) the differentiation proceeded on
    excessive classification, and that resulted in violation of the doctrine of
    equality enshrined in Art'. 14 of the Constitution; (vi) the concession C
    must relate to the goods and not to the personality of the importer; and
    (vii) the allegation that the international prices of edible oils were high
    was inconsistent with the reality of the situation.

          Dismissing the appeals. special leave petitions and the writ peti-         D
    tions, this Court,

           HELD: (I) The power conferred on the Central Government
    under s. 25(2) of the Act is to be exercised by it in its subjective satisfac-
    tion. The exercise of the power is controlled by the requirement in the
    sub-section that the. exemption order must contain a statement stating
                                                                                     E
    the circµmstances of an exceptional nature under which the special
    exemption order has been considered necessary. The requirement is
    intended by the statute to ensure that the satisfaction of the Central
    Government concerning the necessity of the order is not reached arbi-
    trarily but flows from material relevaljt to the object for which the
    power has been conferred. [361E-G]
                                                                                     F
         (2) The limitations on the jurisdiction of the Court in cases where
    the satisfaction has been entrusted to executive authority to judge
    the necessity for passing orders is well defined and has been long
     accepted. [365E-F]
                                                                                     G
          (3) Contracts hy private importers concluded before 2 December,




,
    1978 were allowed to be worked out after that date without affecting the
    principle that as from December, 1978, the business of importing such
    oils belonged exclusively to the State Trading Corporation. This is the
    background in which tile questions raised before the Court need to be
    considered. [364E]                                                               H
    358                    SUPREME COURT REPORTS             [1989] 3 S.C.R.

A          (4) It is the Central Government which has to he satisfied, as the . .')
    authority appointed by Parliament under s. 25(2), that it is necessary in     {
    the public interest to make the special order of exemption. It has set out
    the reasons.which prompted it to pass the orders. It is not for this Court
    to sit in judgment on the sufficiency of those reasons. [365D-E]
B
           (5) The reasons set forth in the exemption notifications can con-
    stitute a reasonable basis for those notifications. International pric~s      )
    were fluctuating, and although they may have shown a perceptible fall
    there was the apprehension that because of the history of fluctuations
    there was a possibility of their rising in future. The need to protect the
    domestic market is always present, and therefore encouragement had to        1
c   be given to the imports effected by the State Trading Corporati.on by
    reducing the rate of customs duty levied on them. [364F-G I

          (6) It is true that the State dons the robes of a trader when it
    enters the field of commercial activity, and ordinarily it can claim no
    favoured treatment. But there may be clear and good reason for making
D
    a departure. Viewed in the background of the reasons for granting a
    monopoly to the State Trading Corporation, acting as an agent or
    nominee of the Central Government in importing the specified oils, it
    will be evident that policy considerations rendered it necessary to make
    consummation of that policy effective by imposing a concessional levy
E
    on the imports. No such concession is called for in the case of private       j
    importers who, in any event, are merely working out contracts entered
    into hy them with foreign sellers before 2 December, 1978. [365F-H]

          S. T.C. v. Commercial Tax Officer, Vishakapatnam, [1964] 4 SCR
    99; Heavy Engineering Mazdoor Union v. State of Bihar, [1969] 3 SCR
    995; Andhra Pradesh State Road Transport Corporation v. Income Tax
F
    Officer, [1964] 7 SCR 17; Vidarbha Housing Board v. Income Tax
    Officer City & Refund Circle, Nagpur, 92 ITR 430; L.I.C. v. Escorts
    Ltd., [1986] 1 SCC 264, 344; State of J & K v. T.N. Khosa, [1974] 1
    SCR 771, 792; Mohammad Shujat Ali v. Union of India, [1975] 1 SCR
    449, 470 and In Re The Special Courts Bill, 1978, [1979] 2 SCR 476,
    561-2, referred to.
G
         CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.
    1924-27 of 1980 etc. etc.

       From the Judgment and Order dated 14.11.1979 of the Delhi
H High Court in Civil Writ No. 1517of1979.
                    M.J. BHATUSHA v. U.0.1. !PATHAK, CJ.}                359

          Soli J. Sorabjee, S.K. Mehta, H.N. Salve, A.N. Banatwala,
                                                                                A
    Rajiv Datta, R. Ravindran, K.K. Patel, Ujwal Rana, M.K. Dua, S.M.
    Sarin, Aman Vachher, E.M.S. Anam, P.G. Gokhale, P.B. Agarwala,
    R.B. Hathikhanawala, Ms. S. Manchanda, K.K. Mohan, P.K.
    Chakravarty, S. Srinivasan, K.C. Agarwal, Madan Lokur, A.
    Minocha, R.B. Datar, K.M.K. Nair, S.K. Gambhir, Sanjay Sarin,
    Vivek Gambhir, M. Veerappa, Ms. Kamini Jaiswal, M.K.D.                      B
    Namboodiry, D.D. Gupta, E.C. Agrawala, V.K. Pandita, Ms.
    Purnima Bhatt, Atul sharma, V.N. Ganpule, C.K. Ratnaparkhi,
    M.M.L. Srivastava, M.C. Dhingra, V. Maya Krishnan, D.N. Misra,
    K.K. Gupta and Anis Ahmed Khan, for the Appellants.
         K. Parasaran, Attorney General, B. Datta, Additional Solicitor
    General, and Kuldip Singh, Additional Solicitor General, K.N. Bhatt,        c
    C.V. Subba Rao, Ms. A. Subhashini, Mrs. Sushma Suri, A. Subba
    Rao, A.K. Srivastava, P.P. Singh, R.K. Joshi and H.K. Gangwani for
    the Respondents.
          The Judgment of the Court was delivered by
                                                                                D
          PATHAK, CJ. These appeals by special leave are directed
    against the judgment and order of the High Court of Delhi dismissing
    writ petitions complaining of discriminatory treatment between the
    appellants and the State Trading Corporation in regard to the rate of
    customs duty levied on the import of edible oils. A number of writ
    petitions have also been filed directly in this Court by other private      E ,
    importers based on the same complaint. They pray for relief in terms
    of the same rate of customs duty as has been applied to the import of

I   edible oils effected by the.State Trading Corporation.

          As common questions of law arise in these appeals and writ
    petitions and the facts are substantially similar, we proposed to treat     F
    Writ Petition No. 3800 of 1980, Mis Liberty Oil Mills v. Union of India
    & Others, as the leading case.

          On 17 January, 1977 the Government of India issued a Public
    Notice permitting private parties to import edible oils for direct human
    consumption. It was not permissible to use such imported oils for the       G
    manufacture of Vanaspati or for any industrial purpose. Under the
    Import Policy of 197~-79, the Government canalised the import of
    edible oils so that the State Trading Corporation alone was permitted
    to import edible oils. Some of the private importers who had entered
    into firm commitments with foreign suppliers, and were now being
    denied permission to import the edible oils filed writ petitions in vari-   H
    360                   SUPREME COURT REPORTS            [1989] 3 S.C.R.

A ous High Courts, and these writ petitions were allowed and they were
  granted licences to import the edible oils.

         Prior to I March, 1979 the import of edible oils was exempt from
  customs duty, but with effect from that date the exemption was par-
  tially withdrawn and certain specified oils were made liable to import
B duty at 121/2 per cent. Exemption was granted from additional duty
  chargeable under s. 3 of the Customs Tariff Act, 1975. Auxiliary duty
  chargeable under the Finance Act was, however, payable. On 17
  March, 1979 the Government passed an order of exemption in favour
  of the State Trading Corporation under s. 25(2) of the Customs Act,
  1962 whereby the imports of the specified oils by the State Trading
  Corporation were made liable to customs duty at 5 per cent orily, and
c there was a total exemption from auxiliary and additional du'ty. The
  imports of the same specified oils by private importers were made
  liable to customs duty at 12.5 per cent ad valorem. The concessional
  rate of customs duty in favour of the State Trading Cerporatlon was
  restricted to imports aggregating 3 lakh tonnes initially. That quantity
D was enlarged to 6 lakh tonnes on 26 June, 1979. On 31October,1979,
  a further order of exemption was made in favour of the State Trading
  Corporation granting it exemption for imports of five lakh tonnes of
  the specified oils, and this was followed on 31March,1981 by another
  order of exemption in respect of an aggregate quantity of 5 lakh tonnes
  of oil. It may be mentioned that on 12 May, 1981 the import of edible
E oil was exempted from the levy of auxiliary duty.

        On 18 July, 1981, the Government reduced the exemption
  granted to the import of the specified oils by private operators by
  raising the customs duty to 42'/i per cent. The exemption in favour of
  the State Trading Corporation continued without change. Thereafter
F on 26 July, 1981, by Ordinance No. 9 of 1981 the Government raised
  the tariff rate of customs duty to 200 per cent ad valorem by amending
  the Customs Tariff Act, 1975. At the same time exemption was
  granted insofar that the effective rate of duty on the import of the
  specified edible oils, except Rape Seed oil and Soyabean oil, was fixed
  at 125 per cent. The exemption from auxiliary duty was withdrnwn. In
G the result a private importer had to pay a basic duty of 125 per 'cent and
  auxiliary duty of 25 per cent on the import of edible oils. The .oil seeds
  imported by the State Trading Corporation continued to attract
  customs duty at 5 per cent.

      Writ Petitions were filed in the High Court of Delhi b'y private
H importers complaining of the differential treatment accorded between
                           M.J. BHATUSHA v. U.0.1. [PATHAK, CJ.]                 361

           the private importers and the State Trading Corporation, but these A
           writ petitions were dismissed by the High Court, and the appeals by
           special leave have now been placed before us. As has been mentioned'
           earlier, writ petitions have also been filed directly.

                 At the outset learned counsel for the private importers states
           that no objection js being taken to canalisation in favour of the State      B
-1         Trading Corporation. Nor is there any objectioa to the permission
           granted to the State Trading Corporation to import 17 lakh tonnes of
           edible oils. The complaint is directed against the differential treatment
           meted out to the private importers in the rate of customs duty.



'
_,, ment The contention of the petitioners is that the discriminatory treat-
         hs no real or substantial nexus with the proposed object of the
                                                                             c
           exemption orders, having regard to the terms of s. 25(2) under which
           the exemption orders in favour of the State Trading Corporation have
           been made and, therefore, there is a violation of Art. 14 of the Con-
           stitution. S 25(2) provides:
                                                                                        D
                       "(2) If the Central Government is satisfied that it is neces-
                       sary in the public interest so to do, it may, by special order
                       in each case, exempt from the payment of duty, under

~l
                       circumstances of an exceptional· nature to be stated in such
                       order, any goods on which duty is leviable."
                                                                                        E
                 It is apparent that the power conferred on the Central Govern-
           men! under s. 25(2) of the Act is to be exercised by it in its subjective
           satisfaction. It must be satisfied that it is necessary in the public
           interest to pass a special exemption order. The exercise of the power is
 -~-       controlled by the requirement in the sub-section that the exemption
roir-      order must contain a statement stating the circumstances of an excep-        F
           tional nature under which the special exemption order has been
           considered necessary. The requirement is intended by the statute to
           ~nsure that the satisfaction of the Central Government concerning the
           necessity of the order is not reached arbitrarily but flows from material
           relevant to the objeci for which the power has been conferred. The
           circumstances recited in the exemption orders are:                           G
     \ '
-{                     " ..... In view of high international prices of vegetable oils
                       and in order to keep the domestic prices of vanaspati at
                       reasonable levels, it has been felt that certain specified
                       vegetable non-essential oils imported by the S.T.C. would
                       need to be exempted from part of the customs duty."              H
    362                    SUPREME COURT REPORTS            [19891 3 S.C.R.

         The reasons set forth in this statement have been analysed by          ').--"
A                                                                               I
   learned counsel for the private importers and an attempt has been
  ·made to establish that there is no justification for relying on the inter-
   national prices of vegetable oils nor the stated desirability of keeping
   the domestic prices of vanaspati at reasonable levels as grounds for
   making the impugned exemption orders in favour of the State Trading
B Corporation. In detailed argument, learned counsel for the private
   importers urges that the public interest which could be contemplated
   under s. 25(2) must be the reduction of the landed cost in order to
   reduce the domestic prices of the oils. That object, it is said, is not
   served by conferring an advantage upon a particular importer even if it
   be the State Trading Corpora!lon, who is engaged in the same activity
  in respect of the same goods. It is pointed out that the concession must
c relate to the goods and not to the personality of the importer. Further,
  it is argued, the allegation that the international prices of edible oils
  were high is inconsistent with the reality of the situation; on the con-
  trary, it is pointed out, there had been a fall in the international prices
  of various oils. In support of the latter submission, reference has been
D made before us to the pleadings of the parties and a P.A.C. report.
  Elaborating his submission in regard to the stated need for maintaining
  the domestic prices of vanaspati at reasonable levels, learned counsel
  for the private importers urges that the oils which were being imported
  by private importers were intended for direct human consumption and
  could not have been supplied to the vanaspati industry. Reference is
E made to the affidavits of the parties to show that the oils imported by
                                                                                l
  the petitioners could not be utilised in the manufacture of vanaspati as
  permission to do so had not been granted. Accordingly, the private
  importers say, there is no basis for the differential duty set out in the
  exemption orders and no real or substantial nexus between the dif-
  ferentiation made and the object of s. 25(2). Then, it is also urged,
F there is no real or substantial distinction between the private importers
  and the State Trading Corporation having regard to the object of the
  statute, the nature of customs duty, the rationale of s. 25 and the
  professed object of the exemption orders under s. 25(2). The State
  Trading Corporation, it is contended, cannot be equated with the
  Central Government, and we are referred to S.T.C. v. Commercial
G Tax Officer, Vishakapatnam, 11964] 4 SCR 99. It is a private limited
  company registered under the Companies Act, 1956 and liable to be
  wound up under that Act, and that although it functions under the
  supervision of the Government of India and its Directors, it is not
  concerned with the performance ·of any governmental functions, its
  functions being entirely commercial and in the nature of a trading
H activity. Reliance is also placed on Heavy Engineering Mazdoor Union
                  M.J. BHATUSHA v. U.0.1. [PATHAK, CJ.]               363

  v. State of Bihar, [1969] 3 SCR 995; Andhra Pradesh State Road Trans-.      A
  port Corporaton v. Income Tax Officer, [1964] 7 SCR 17 and Vidarbha
  Housing Board v. Income Tax Officer, City and Refu,nd Circle, Nagpur
  & Others, 92 ITR 430. Assuming, the private importers contend, that
  the State Trading Corporation can be equated with the Central Gov-
  ernment or that it is acting on behlf of the Central Government, once
  the Government ventures into the commercial field it dons the robes of      B
  a trader, and it cannot thereafter claim any special attribute or prefer-
  ence for differentiation from other traders. Learned counsel has
  placed before us the observations of this Court in L.I.C. v. Escorts
  Ltd., [1986] 1 SCC 264,344. There is no rational basis, it is urged, for
  making a distinction in the imposition of customs duty in respect of the
  goods imported by the private importers and the State Trading Corpo-        C
  ration as both purchased the same commodity in the open market for
  direct consumption, that the sales effected by them are on a commercial
  basis, and there is nothing to show that the State Trading Corporation
  sold these oils at a price lower than the market price or at subsidised
  prices. It is asserted that the Central Government, like any other
  importer, is liable to customs duty, and we are referred to s. 12 of the    D
  Customs Act. It is also complained that the differential proceeds Qn
  excessive classification, and that results in violating the doctrine of
  equality enshrined in Art. 14 of the Constitut'on. Reliance is placed on
  State of J & K v. T.N. Khosa,, [1974] 1 SCR 771, 792; Mohammad
  Shujat Ali v. Union of India, [1975] 1 SCR 449, 470 and In Re The
  Special Courts Bill, 1978, [1979] 2 SCR 476, 561-2. And, finally, the       E
  private importers claim that inasmuch as approximately 17 lakh tonnes
  of oil were imported by the-State Trading Corporation as against a
  mere 1 lakh tonnes of oil imported by all the private importers
  together, and the exemption from duty has been granted in the public
  interest, namely, to control or reduce the price of edible oils, the
  relief which should be granted is to include the imports made by the        F
  private importers within the particular customs duty rate of five per
  cent already extended to the oils imported by the State Trading Corpo-
  ration. In some cases, it is alleged that if the imports effected by the
  private importers has to bear the duty levied upon them, the impact of
  the total duty would be so impossible that it would cripple the business
  of those private importers.     ·                                           G

         In reply, the learned Attorney, General has laid great stress on
   the submission that the State Trading Corporation, in undertaking the
   imports, acts solely as an agent or nominee of the Government of India
   and all the profits and losses are on account of the Government of
., India, the State Trading Corporation being entitled to service charges     H



                                                                                  ...
    364                    SUPREME COURT REPORTS              [1989] 3 S.C.R.

A only at one per cent irrespective of loss or profit. It is submitted that       ).-"'
                                                                                  !
  the Central Government is not liable to customs duty and we are
  referred to various considerations in support of that claim. It seems to
  us unnecessary to enter into that question because we have before us a
  situation where customs duty has in fact been imposed, even though at
  the rate of five per cent only. In accepting the imposition of customs
B duty, albeit at five per cent, neither the State Trading Corporation nor
  the Central Government rest their case on any claim to immunity of
  the Central Government from the levy of customs duty. It is not neces-
  sary, therefore, to construe the amendment made in s. 12 of the
  Customs Duty Act, 1962, to which both learned counsel have made
  reference.
c       The limited question before us is whether there is justification
  for the differential treatment accorded between the State Trading
  Corporation and the private importers. Now it is significant to note
  that the import of the specified oils had been entrusted exclusively to
  the State' Trading Corporation with effect from 2 December, 1978, and
D because the private importers had already, prior to that date, entered
  into contracts for purchase of the edible oils with foreign sellers, they
    were permitted to .make the imports in question in order tu honour
  their commitment. In other words, contracts by private importers con-
  cluded before 2 December, 1978 were allowed to be worked out after
  that date without affecting the principle that as from 2 December,
E 1978, the business of importing such oils belonged exclusively to the
  State Trading Corporation. This is the background in which the ques-
  tions raised before us need to be considered.

           First, as to the contention that both the reasons set forth: in the
     exemption notifications under s. 25(2) of the Act are without founda-
F lion. It seems to us that the two reasons set forth in the exemption
     notifications can constitute a reasonable basis for those notifications.
     It does appear from the material before us that international prices
     were fluctuating, the although they may have shown a perceptible fall
     there was the apprehension that because of the history of fluctuation
     there was a possibility of their rising in the future. The need to protect
(; the domestic market is always present, and therefore encouragement
     had to be given to the imports effected by the State Trading Corpora-
     tion by reducing the rate of custo,rns duty levied on them. This involved
     a long term perspective, since the exclusive monopoly to import these
     edible oils was now entrusted to the State Trading Corporation. Wh'at
     appears to have dominated the policy of the Government in issuing the
Jl:I exemption notifications was the consideration that the domestic prices
                M.J. BHATUSHA v. U.0.1. [PATHAK, CJ.]                 365

of vanaspati should be maintained at reasonable levels. It cannot be
doubted that the entire edible oil market is an integrated one, and that     A
it is not reasonable to treat anyone of the edible oils or vanaspati in
isolation. It is well accepted fact that vanaspati manufacturers consti-
tute a powerful organised sector in the edible oil market, and a high
vanaspati pirce would encourage an unauthorised diversion of the
edible oils to vanaspati manufacturing units, resulting in a scarcity in     B
the edible oil market, giving rise to erratic prices and uepriving
consumers of access to edible oils. The need for preventing vanaspati
prices ruling high was also to prevent people normally using vanaspati
from switching over to other edible oils, thus leadng to an imbalance in
the oil market. An overall view made it necessary to ensure that
domestic prices of vanaspati remained at reasonable levels. To all
these ccnsiderations the learned Attorney General has drawn our              c
attention, and we cannot say that they are not reasonably related to
the policy underlying the exemption orders. So that the Government
would have sufficient supplies of edible oil at hand in order to feed the
market, the learned Attorney General says, it was considered desir-
able and in the public interest to reduce the rate of customs duty to five   D
per cent on the imports made by the State Trading Corporation. Now
it is the Central Government which has to be satisfied, as the authority
appointed by Parliament under s. 25(2), that it is necessary in the
public interest to make the special orders of exemption. It has set out
the reasons which prompted it to pass the orders. In our opinion, the
circumstances mentioned in those notifications cannot be said to be          E
irrelevant or unreasonable. It is not for this Court to sit in judgment on
the sufficiency of those reasons. The limitations on the jurisdiction of
the Courf in -eases where the satisfaction has been entrusted to execu-
tive authority to judge the necessity for passing.orders is well defined
and has been long accepted.
                                                                             F
      It is true that the State dons the robes of a trader when it enters
the field of commercial activity, and ordinarily it can claim no
favoured treatment. But there may be clear and good reason for
making a departure. Viewed in the background of the reasons for grant-
ing a monopoly to the State Trading Corporation, acting as an agent or
nominee of the Central Government in importing the specified oils, it        G
will be evident that policy· considerations rendered it necessary to
make consummation of that policy effective by imposing a conces-
sional levy on the imports. No such concession is called for in the case
of the private importers who, in any event, are merely working out
contracts entered into by them with foreign sellers before 2 December,
~.                                                 .                         H
    366                   SUPREME COURT,REPORTS            [1989] 3 S.C.R.

A         We are also not satisfied that any of the private importers have
    made out that their business will be crippled or ruined in view of the
    rate of customs duty visited on their imports. The material before us is
    not sufficient to warrant any conclusion in their favour.

           As, in our opinion, the private importers are not entitled to
B
    relief, no question arises of considering whether the exemption orders
    should be struck down or their benefit extended in favour of the pri-
    vate importers also.

           The appeals and Petitions for Special leave to appeal as well as
    the writ petitions before us are dismissed, but there is no order as to
C   costs.

    R.S.S.                             Appeals and Petitions are dismissed.